Forex trading is a great way to earn money as an investor. The market has many different currencies which you can pair up and trade for a profit. Like any business, it is important to understand the market dynamics in order to take advantage of the opportunities that arise. Without proper knowledge, you are bound to make many mistakes which might hamper your progress. There are many kinds of mistakes that beginners and experts make while trading. The following are the common mistakes done by traders and how to avoid them.
1. Trading without a plan
One of the biggest mistakes that traders do is going straight into the trade without having a plan. This is the wrong approach to take and it can result in huge losses. Like in any other kind of market, having a working plan is important. Plans not only outline the steps you should take when on the market, but they also incorporate a specific timeline. The aspect of time is very important in the forex business because the market is quite volatile. Knowing the levels that you should trade, when to trade and how to trade are all things that come with having a good plan.
2. Choosing the wrong broker
Brokers facilitate the trade. They act as the link between traders and the market. The right broker can, therefore, determine the kind of experience you will have in the market. Many traders make the mistake of choosing brokers who are not experienced or who are simply bad managers. Some brokers are outright scammersÂ and banking your money with them could mean losing it all. It is important to check the profiles of the different traders before actually getting into a business relationship with them. Doing this can alleviate trouble.
3. Choosing the wrong trading tools
Forex trading is also about using the right kind of tools in order to succeed. There are many different sets of tools available for traders who want to succeed. Trading tools are important aspects of the business as they help you identify entry and exit points in the market. One of the most commonly used tools is MetaTrader 4. Before you use this tool though, you need to read the Mt4 guideÂ in order to fully understand how it works. You should also investigate the market for apps to know which ones are useful for the trade. There are over 100 tools you can choose in the market. Prudent choices will be crucial for your success.
4. Anticipating the news
Forex trading is all about following the information to where it leads, but you should never try to anticipate the news. Scheduled economic releases happen every once in a while and some traders tend to anticipate the direction that a particular currency pair might take based on expected news. This is a bad move that can cost you huge losses. Most times, big news makes the market move rapidly in both directions. Before the market settles, therefore, traders who might have anticipated the news release might end up losing huge sums.
5. Going all in
It is also a common mistake for traders to invest more than they should, especially when they notice that the market has worked in their favor frequently. Going all in is a bad idea that can go horribly wrong. The forex market is very volatile and changes can happen at any time. When trading in this market, there are established strategies that have been proven to work every time. It is recommended by experts to follow the 1% risk per trade rule no matter how good the market seems to be.
6. Adding to a losing day trade
Finally, it is common for traders to continue averaging down a trade with the hope that the fortunes will change.Â This is not a good idea though. Continuing to add to a losing trade often accumulates to huge losses in the long-run. The market is often frustrating when it comes to changes and reversals, but this should never inform the decision to change the averages of your trading limits. The best strategy to take is to always have a position size and stop loss that will not be moved regardless of the market changes.